FHFA Publishes Proposed PACE Rule

Homeowners may find it more difficult to obtain loans from their local governments for energy saving home improvements under a proposed rule issued by the federal agency responsible for managing government-sponsored lending institutions, such as Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.

The proposal followed a flurry of legal activity that started in July 2010 when the Federal Housing Finance Agency (FHFA) issued an informal statement warning of the risks PACE pose for mortgage investments. The statement effectively halted state PACE programs by causing enterprises such as Freddie Mac and Fannie Mae to completely avoid mortgages associated with PACE loans.

States, environmental groups, and other PACE advocates have filed several lawsuits against the FHFA seeking injunctive relief which would have restarted the programs. In one such lawsuit, a federal district court issued an order to FHFA to initiate a notice-and-comment rulemaking to offer guidance about how lenders should deal with PACE loans. The agency posted the proposed rule in the Federal Register on January 26, announcing it will accept comments through March 26, 2012.

PACE legislation, which has been adopted in 27 states, provides a way for homeowners to obtain funding for energy-efficient home improvements that would otherwise be cost prohibitive. Under the program, homeowners receive loans from the local government and repay them through annual supplemental property-tax assessments.

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Richard L. Revesz is the Lawrence King Professor at New York University School of Law. Professor Revesz also previously served as the Dean of the New York University School of Law. His work focuses on the use of cost-benefit analysis, the allocation of regulatory responsibility in a federal system, and the design of liability regimes